Acceptance Letter
The letter that a borrower eagerly waits to fill up. Once the loan is issued by the way of
sanction letter, the applicant communicates his willingness to accept the loan by way of
an acceptance letter.

Advance EMI
Pay back time! Number of equated installments in the form of post dated cheques, paid out
in advance at the time of disbursement of loan.

Amortization Loan payment calculated to pay off the debt at the end of a fixed period,
including interest on the outstanding balance.

BrokerAn individual in the business of assisting in arranging funding or negotiating
contracts for a client but who does not loan the money himself.

Business DaysThe number of days that the lender takes to process an application for a loan. Find out from your institution to find out what days it counts as business days.

CategoryThe finance companies classify the borrowers into different categories like
salaried or self-employed. The eligibility and the
documentation differ with the different categories.

Closing
The meeting between the buyer and the lender where the funds legally change hands. Also
called settlement.

Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future
date subject to the stated conditions.

Commitment Fee
Much like other commitments, which if one screws up one gets the short end of the straw.
It is an interest, which is charged if you do not draw the sanctioned loan amount within a
period of 6-7 months. The interest rate is usually about 1-2%.

Credit Appraisal
The IMPORTANT PEOPLE! Every Finance Company has its own panel of credit appraisal officers
who process applications. They take into account various factors like income of the
applicants, number of dependents, monthly expenditure, repayment capacity, employment
history, number of years service left over and other factors, which affect the credit
rating of the borrower. Proof of income will also be verified for the purpose of approval
of loan. The time taken for receipt of such information is crucial since it affects the
length of time required for a loan approval.

Down Payment
Wonder why its called down payment when it has to be paid up-front? Finance
companies normally give loans up to 80-85% of the value of the item. The balance would
have to be paid by the buyer, as a payment before he draws on the loan amount.

Equal Monthly Installment (EMI)
EMI or Equated Monthly Installments, refers to the fixed sum of money that you will be
paying to the finance company every month.
The EMI comprises both interest and principal repayment. The size of the EMI depends on
the quantum of loan, interest rate applicable and the term of the loan.

Eligibility
This is a standardized criteria specified by lenders to evaluate willingness and ability
of a customer to qualify for a loan scheme

Estimation
Process to evaluate the worth in money of an asset/product

Exposure
The loan amount as against the value of the asset/product. Try avoiding an indecent
exposure, its better for your health as well!

Flat Rate
Percentage representation of the amount of annual interest on the total loan amount.

Guarantee
That party in the deed who is the buyer or recipient.

Grantor
That party in the deed who is the seller or giver.

Gross Monthly Income
The total amount the borrower earns per month, before any expenses are deducted.

Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified
losses, such as fire, windstorm and the like.

IRR
Internal Rate of Return is the rate at which the lender accounts for interest.

Margin Amount
Margin Amount is the difference between the total cost of the project and the loan amount sanctioned. This money has to be invested by the borrower prior to the release of the loan amount.

Market Value
This is the value of the property as per the prevailing market value.

Maximum amount
This is the maximum amount financed by the bank for a given scheme.

Minimum amount
This is the minimum amount financed by a bank for a given scheme.

Obligation
The borrower in terms of the agreement will be obligated to keep up the schedule of
repayment to deposit the post dated cheques periodically.

Partnership
Partnership is joint or several ownership of a business with the liability of the
partners.

Prepayment Aprivilege in a mortgage permitting the borrower to make payments in
advance of their due date

Prepayment Charges
Most banks charge some fee for pre-payment of loan before the tenure is over. The fee is
normally in the range of 1-2% of the pre-paid amount.

Principal
The amount ofdebt, not counting interest, left on a loan.

Processing Fee
It is a one time fee which is normally non-refundable and is payable before your loan is
disbursed. The rates may vary from 1-2% of the loan amount.

Proprietorship
Single ownership of a business

Reducing Basis
Reducing balance is the method of reducing the principal amount repaid, from the
outstanding loan amount. Every time you make a payment, the interest you pay is calculated
on balance outstanding principal. The reducing balance can be of 4 types: daily, monthly,
quarterly and yearly.

Role of Guarantor
The role of a guarantor is commitment by the way of agreeing to the terms and conditions
of the loan and liable to the extent of the loan/liability together with the interest and
other charges.

Rest
A contradictory word here as it does nothing but increase your tension. Interest rates are
quotes on a daily rest, monthly rest or annual rest basis. The annual rest quote implies
that the company gives you the credit for the monthly principal repayments only at the end
of each year. Such loans are therefore more expensive than a monthly/daily rest loan. The
shorter the tenure of the loan, the greater the effective interest rate difference will
be.Sanction Letter
A letter communicating the sanctioned terms and conditions, once the loan is approved.

Statement of Account
The statement indicating the outstanding loan amount, the amount paid by the borrower, the
appropriations made towards the interest and principal etc. at the end of the financial
year.

Tenure of the Loan
The total time period in which one has to repay the loan. Normally, loans are given for a
period of 6 to 60 months.

Total Initial Payment
Initial payment made by the customer when the asset is purchased and includes service
charges and advance EMI`s if any